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Socially Aware Investing: No Longer a Fringe Interest

Submitted by American Endowment Foundation on October 2nd, 2017

By Eric Kinaitis

For many financial advisors, the historic view of socially-focused investing( also know as socially responsible investing {SRI}) may call to mind client stereotypes: One stereotype is of religiously minded clients who want to ensure that their portfolio does not include companies engaged in activities that may be at odds with their religious beliefs. Another stereotype may be of an investor with specific concerns of corporate behavior in foreign countries concerning issues of fair trade, pollution prevention, and sustainable agriculture.

Advisors need to look beyond the stereotypes and recognize the growing interest that many investors have now in ESG (Environmental, Social and Governance) investing. One article positioned that ESG investing concerns now drive more than $1 in every $6 in assets under management in the US. This figure represents a growth of 76% since 2012.

For clarity, ESG investing usually is defined as creating an investment portfolio in which an investor focuses on a specific important belief (e.g. fair trade) and engages in positive and negative screening supporting that belief. Using our fair trade example, such an investor would actively invest in companies engaged in specific positive fair trade programs with foreign suppliers and not invest in companies that do not implement such specific programs or practices.

A subset of ESG is the concept of community investment. This concept directs capital investment to poor or underserved places where traditional financial providers may not exist or are not prevalent. Those that make community investments may do so with the acceptance that potential below-market results may be worthwhile in exchange for achieving greater social good.

Community investment is merely one example of the broader concept of program related investments (PRI). For many investors and their advisors interested in ESG and PRI, a donor advised fund (DAF) can prove to be the “Swiss Army knife” of financial flexibility. Its structure allows such investors to use a variety of liquid and illiquid assets to fund a DAF.

However, unlike donor advised funds that exist at some community foundations, commercial donor advised funds and cause-related single issue organizations, a DAF at American Endowment Foundation (AEF) provides a donor immense flexibility. Donors at AEF are able to participate in ESG & PRI types of investments with minimal limits and restrictions. Their financial advisors can also remain involved, providing evaluation, guidance and management of the ESG & PRI investments in the AEF DAF.

Contact us or call at 1-888-660-4508 and let's discuss the novel ways that an AEF DAF can help a donor and their advisor make an impact.